what are reaganomics and why did they fail?

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  • 10 years ago
    Best Answer

    The basis for : "Reaganomics" originates with the Laffer Curve.

    http://en.wikipedia.org/wiki/Laffer_curve

    This is a basic theory that the prime (or best) tax rate for a national economy has to lie somewhere between 0% (no tax revenue) and 100%, which would completely shut down an economy as there would be no longer an incentive to work as all monies earned would go to the government in the form of taxation.

    Increasing tax rates past a certain point, in Laffer's theory, had a negative effect on the economy, therefore, a negative effect of tax revenue. Arthur Laffer theorized that the best tax rate was one that allowed for the collection of taxes, while not hampering the economy by over taxation.

    This is the basis for supply-side economics.

    Reagan was a proponent to Laffer's Theory and had Arthur Laffer on his advisory board for economic policy.

    As to the question as to why it failed, well, some say, many actually, that it was a success. If politics are taken out of this debate we learned that Arthur Laffer was correct, therefore Reagan was also, that lowering taxes will have a positive impact on the economy. Lower them too much and debt will rise, but if you also lower spending, which was not possible during the cold war, one can counter the lower tax revenue.

    Also study the "string" theory of economics:

    Imagine the economy is lying on a table tied with a string. You can "reign" it in by pulling the string, as in raise taxes. But, if you give that string slack, as in lowering taxes, the economy does not immediately take off. It sort of just lies there with slack on the string.

    This is a theory as to why it takes so long for economies to "turn around." Many forget how terrible things were in this country under Carter and why it took several years under Reaganomics for things to turn around.

  • Anonymous
    10 years ago

    Investopedia explains Reaganomics

    The term was used by supporters and detractors of Reagan's policies alike. Reaganomics was partially based on the principles of supply-side economics and the trickle-down theory. These theories hold the view that decreases in taxes, especially for corporations, is the best way to stimulate economic growth: the idea is that if the expenses of corporations are reduced, the savings will "trickle down" to the rest of the economy, spurring growth.

    Prior to becoming Reagan's Vice President, George H. Bush coined the term "voodoo economics" as a proposed synonym for Reaganomics.

  • 10 years ago

    Reagan was a supply sider.

    When you look at a supply and demand graph, when the demand curve is manipulated you will always end up either higher inflation or high unemployment

    When the supply curve is manipulated, you can achieve both low unemployment and reduce inflation at the same time

    To move the supply curve in the real world, Regan cut taxes, particularly cap gains taxes. Investment in private industry increased, comapnies expanded, jobs were created, unemployment was low and so was inflation.

    THere are libs today that say that taxes should not be cut to big corps because it hurts our economy and there is no benefit to that at all.

    Anyone who says there is no such thing as "trickle down" has never been involved in running a small business

    It didnt fail. It was a success. The debt was not a result of supply side economics, but instead was a result of ending the cold war. WHen you think of the challenges Reagan faced not only from foreign entities, but the fact that the auto industry and steel industry collapsed, and that we were moving into a technolgy revolution that has been likened to the industrial revolution.....with many displaced workers for a period of time...you could say that it was an amazing success!

  • 10 years ago

    you can look up the basics of "supply side" economics pretty much anywhere...but to say they "failed" is a bit misleading...

    yes, they depended on running up considerable debt, but let's look at it this way:

    You inherit your family home and find that it is falling apart due to years of neglect. You won't make any money by selling it and you don't want to just abandon it...so you decide to mortage everything you have and take out a huge loan.

    Your "Master Plan" is this:

    You will use the money to rennovate the house. To save money, you'll do as much of the work as possible yourself and hire friends to help you out. Once the house is fixed, you'll rent out some of the rooms to generate income to re-pay the loan.

    After the first couple months you find your house is really coming along. You also decide that it would be a shame to have a newly renovated house with old furniture and appliances...so you use some of the loan money to buy new stuff. You tell yourself you're going to be "practical" but that brand new big-screen is just too sweet to pass up.

    Now the place is really looking nice. You're actually ahead of schedule so you decide you and your buddies will take a break. You use another chunk of the loan money to hire some contractors to do the work for you and rent a place in Cancun for you and your buds.

    After you get back, your house is looking way too nice to rent out to strangers, so you decide to just enjoy the place for yourself. It becomes a rockin' party pad, and you party so hard that you accidentally miss a couple payments.

    You look at your money situation and realize that you're falling behind. You still don't want to rent, so you decide to get a second mortgage to help pay off your party bills. You realize there's some money left over, so you use the rest to put down on a brand new sports car.

    A few months later, you find that all your credit cards are maxed out...the banks are calling you because you're late on both mortgages again and you're car is in danger of being re-possessed. You have no choice but to lose the house and watch the "greedy" bank take possession of it.

    Now...do you maintain that your "Master Plan" failed....or was the "failure" something else...?

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  • glantz
    Lv 4
    3 years ago

    What Are Reaganomics

  • 10 years ago

    Fail? Who taught you that it failed? It saved America!

    Source(s): History
  • Anonymous
    10 years ago

    Monetarism or Supply Side Economics (voo doo economics according to Bush 41).

    It failed because it created too much public debt.

  • WRG
    Lv 7
    10 years ago

    Who said they did? Without the additional cost of winning the Cold War things would have been perfect.

  • Anonymous
    10 years ago

    IF YOU CALL THE LONGEST ECONOMIC EXPANSION IN HISTORY A FAILURE, WE COULD USE A LOT MORE FAILURES LIKE THAT

  • Anonymous
    10 years ago

    It didn't. Liberal policies and lies failed us.

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